According to the WSJ, "Worries about a shortage [of wheat] already have sent grain prices soaring, threatening a potentially damaging bout of food inflation.... The high stakes in coming weeks show how thin the margin for error is in the global food supply. The appetites of many nations are growing, and they rely on international trade to sate it."
What happens next depends on two countries: 1) Russia, which is battling raging forest fires caused by a record heat wave, and has temporarily banned wheat exports. And 2) the US, which supplies almost a third of the world's wheat. American farmers have only weeks to decide whether to seed extra fields. The farmer who plants extra wheat stands to lose money if predictions of a shortage in Russia turn out to be false.
The article describes how uncertainty about Russia clouds the future:
Russia's crop next year is dependent on the drought breaking. Seeds in the Black Sea region that includes Russia and Ukraine need at least an inch or two of rain in coming weeks.... But there is little rain in the near-term forcast.Meanwhile, locusts threaten Australia's harvest. Egypt, the world's largest wheat importer, anticipates having to spend nearly an extra $1 billion to buy wheat. In 2008, Egypt faced the prospect of political upheaval due to wheat shortages. Another shortage would have political implications for Thailand, Indonesia and even Russia. Some lessons about the need to stock-up may have been learned in 2008. Russia is already buying wheat from France. India has massive stockpiles.
The unfolding global reaction to Russia's export ban makes it hard to predict whether the market for wheat will face a shortage or a surplus. In the short-term, in particular, it isn't clear what governments will do with their existing stocks.
Russia's Deputy Prime Minister Igor Shuvalov has said the government may revise the ban—currently set to run from Aug. 15 until Dec. 31—later this year, depending on the harvest. Meanwhile, the influential grain union is pressing the government to delay the start of the ban until Sept. 1.
Speculation is a major concern. As chocolate fanatics like me know, Cocoa futures speculation has led to staggering increases in the price of that delicious food this year. Some observers blame the 2008 food crisis on speculation by the major Wall Street banks. Frederick Kaufman, contributing editor of Harper’s Magazine and author of the piece The Food Bubble: How Wall Street Starved Millions and Got Away With It told Democracy Now that "their speculation and their restructuring of these commodity markets pushed 250 million new people into food insecurity and starving." The World Development Movement published a report on the episode, and then a defense of their research. The WDM report had been attacked in the Guardian by Seth Freedman. Freedman's defense of the speculators amounted to arguing that protectionist governments are worse than speculators:
Protectionist procedures, such as farming subsidies in the US and EU, are still causing havoc in the developing world as they allow subsidised commodities to be dumped in third-world countries, undermining domestic farming and hampering local growth.Freedman quoted a report by Goldman Sachs:
"Research by respected international bodies, like the OECD, demonstrates clearly that long-term trends, including increased meat consumption by the growing middle class in the emerging markets and the increased use of biofuels in the developed markets, have created a backdrop for global food shortages."Maybe Goldman Sachs would care to answer this question: Why are governments subsidizing biofuels? Why did a politician like Barack Obama, back when he was senator, work tirelessly on behalf of the biofuel industry? Now that he is serving in the White House, we have had an opportunity to question his administration's relationship with the still largely deregulated financial industry. And its the same story. Only the characters change. Whether the industry that holds the political process captive happens to be agriculture or finance, the outcome is identical: markets get distorted and the economy stops working for the people. It's not a case of free enterprise good, governments bad. It's not the reverse. It's that too many politicians today are hostage to corporate agendas.
Alarmingly, Russia's decision to hold back exports might be linked to speculation, reports Sanjuro, a frequent contributor to JOTMAN.COM. Surveying Russian language media sources, Sanjuro writes:
What to do about this? Frederick Kaufman said:Reactions to the food situation are somewhat muted - but now it appears Russia will harvest less than it consumes (likely a net importer again). I recall reading over a month ago in the Gazeta an interview with a "grain expert" that reassured that everything was "under control" and there "won't be shortages." Of course, as soon as I read that, I immediately urged my relatives to stock up.
Perhaps unrelated: there are speculations in the Russian web, that the Switzerland-based Glencore with interests in metals and grain is closely connected to Putin, and that was another reason to cut exports, allegedly to create a temporary price surge, by holding on to stocks for some time. Likely not true, but some large exporters will sure make a handsome profit.
So what’s the solution? I think the best solution that’s been floated around in Washington in the groups I’ve been close to is an actual international or national grain reserve. I mean, we actually in this country, before this kind of mania of deregulation, had a farmer-owned grain reserve under the Clinton administration, real grain held back, so that in times of a bubble like this, regulators can say, "Look, you know, we have plenty of real wheat. Here’s a hundred million bushels of wheat. We can bring it to the market. We can bring that price back into a stable band." And this is, I think, in some ways, the best solution: real wheat to counter virtual madness.Indeed. Governments need to be armed with the tools to protect the public from the the real and obvious dangers of abusive market capitalist excess. I wouldn't bet a return to Clinton-era sanity anytime soon, given feckless world leaders we have today, and their demonstrated allegiance to the financial industry (as evident by the austerity policy that G20 heads signed onto at the end of June in Toronto).
We have to hope it rains in Russia.